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REITs Decreasing Acquisitions, Construction Costs Cause Concerns

by Amy Sorter on April 15, 2014

Last week, Axiometrics sent a group to Austin, TX to attend—and present at—Student Housing Business’ InterFace Student Housing Conference 2014. Billed by France Media (which publishes Student Housing Business) as “A national information and networking event for the student housing industry,” this event attracted more than 900 attendees and many major industry players.

In between the round tables, the keynote speakers, the presentations and the networking, some interesting trends emerged from this conference.

REITs are Pulling Back from Acquisition Mode

American Campus Communities Inc. made a huge splash in late 2012 when it announced the acquisition of 19 student housing properties—for a total of more than 12,000 beds—from Kayne Anderson Capital Advisors. The REIT completed its transaction in late 2013. But don’t look for similar transactions in 2014. REITs are taking a step back from buying. This presents some interesting opportunities for the regional players interested in expanding their portfolios.

Oversupply Isn’t the Concern—Costs Are

In late 2013, some industry publications started banging the “oversupply” gong of too many beds and too few students to fill them. In truth, there really isn’t oversupply, though a couple of markets are reaching capacity. But as it turns out, oversupply isn’t as much of an issue among developers and owners as is development yield. In other words, construction and land costs are going up, as are entitlement challenges, while labor availability is going down. Cost and labor variables could end up being more of an issue than a supply glut.

Speaking of supply, Axiometrics’ tracking of universities nationwide (from American University to Wake Forest University and many schools in between) has identified 60,000 new beds coming to market for the 2014-2015 school year. This doesn’t automatically mean oversupply, however.

We consistently point out the necessity of drilling down to the university level to determine demand and supply fundamentals. Factors in a given market—such as enrollment trends, university living requirements and current number of beds already in existence—determine whether what’s coming online represents a supply glut or an amount the market can easily absorb.

Preleasing and Rents are Strong

No one is seeing the preleasing or effective rent frenzy of three or four years ago. But most at the conference agreed that signs are positive for an active leasing year in the student housing sector.

In the future, we’ll explore these and other student housing issues through blogs and white papers, so stay tuned. In the meantime, click here to view a PDF of the Axiometrics brochure we distributed at the InterFace conference. In it, you’ll find our student housing forecast for the 2014-2015 school year.